Direct-Payment Models Starting to Gain Traction with Physicians, Patients

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Every day, 10,000 Baby Boomers turn 65 and become eligible for Medicare. A generation numbering 77 million, boomers are showing up in the offices of primary care physicians more and more as the effects of aging lead them to seek ever greater medical attention.

Caring for boomers — like all patients — is part of a doctor’s sacred calling, but the reams of paperwork and billing headaches that accompany them threatens to overwhelm the office staff of not only solo physicians, but larger practices as well.

Adding additional staff to manage the administrative burden due to the growing onslaught of boomers and increasing regulatory pressures may not be enough for a practice to survive and thrive going forward. Relying on yesterday’s solutions rarely work today, much less in the future.

Now might be a good time to explore alternative reimbursement structures such as direct payment. Direct-payment models, which are starting to gain acceptance across the country, enable physicians to deal directly with the patient for payments, without having to go through an insurance provider.

Direct-payment model example

Though these models and fee structures will vary, here’s an example of what a direct payment model might look like: The patient pays a primary care physician an introductory charge, plus a monthly fee, maybe somewhere in the range of $70 a month, with yearly rates around $850, depending on the number of visits and services offered. This fee covers most primary care services. Children under 18 could be added to the plan for, say, as little as $240 annually.  

Patients worried about major health issues, such as cancer or a car accident, could also carry a separate high-deductible insurance policy that would have relatively low monthly payments, but provide coverage for catastrophic events.

Gaining traction with support from AAFP, CMS

Without having an insurance carrier as a financial partner, physicians participating in the direct payment model are taking on a form of risk that is similar to a capitation payment model, but without the ability to share that risk. However, with risk can come reward, and healthcare providers have the potential to benefit from direct payment in many ways.

The American Academy of Family Physicians supports the direct-payment concept, citing the following advantages:

  • Lower overhead
  • Improved collection rates
  • Reduced patient volume
  • Fewer medical errors
  • Elimination of insurance filings
  • More time for patient care

The concept is starting to gain traction. Since Congress passed the Affordable Care Act in 2010, the number of physician practices with a direct-payment model has slowly grown to more than 600, according to the Direct Primary Care Coalition. Dozens of such practices have spread throughout Florida. Trying to encourage more growth, the Florida Legislature passed a law that took effect in July exempting direct-payment arrangements from any regulations under the state insurance code.

The Centers for Medicare & Medicaid Services (CMS) announced earlier this year that it would develop a potential direct payment model within Medicare and Medicaid programs, enabling providers to contract directly with CMS and share accountability for costs and quality of care. “Such a model would have the potential to enhance the doctor-patient relationship by eliminating administrative burden for clinicians and providing increased flexibility to provide the high-quality care that is most appropriate for their patients, thus improving quality while reducing expenditures,” according to the CMS press release.

The future for alternative reimbursement

The adoption of alternative reimbursement structures and increased efficiency of the overall health system will take time. As healthcare providers move away from the longstanding fee-for-service approach and toward value-based care, direct-payment models and other structures could become increasingly attractive to providers who are willing to take on more risk in exchange for the benefits mentioned above.  And while current tax laws are not especially favorable for patients participating in direct-payment models (i.e., fees cannot be deducted on a pre-tax basis), that may change.

Direct payment has the potential become the payment model of choice for more physicians as the healthcare landscape continues to evolve. Providers who want to learn more about alternative reimbursement structures can contact a qualified healthcare consultant who can provide insight into industry changes and how those trends may impact their practice.

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